Lish was raised in Hewlett, New York on Long Island; his father was a partner in Lish Brothers, a millinery firm. During his formative years, he suffered from extreme psoriasis and was often ostracized by his peers. He attended Phillips Academy but left without graduating following an altercation with an antisemitic classmate in 1952. He took a job as a radio broadcaster for WEIL in New Haven, Connecticut, under the pseudonym of Gordo Lockwood and continued to correspond with Carruth, who introduced Lish to the Partisan Review. In November 1956, Lish married Loretta Frances Fokes; they would go on to have three children.

After Carruth advised him to attend college, Lish matriculated at the University of Arizona, mainly because the climate ameliorated his psoriasis. He majored in English & German and clashed with creative writing instructor Edward Loomis, an adherent of the New Criticism who routinely disparaged Lish's more idiosyncratic influences, including Ralph Waldo Emerson, Dylan Thomas and Jack Kerouac. Nevertheless, Lish completed his degree in two years with honors, graduating in 1959.

The outré nature of Genesis West incensed school board officials, and Lish was denied tenure in 1963; two fellow teachers left in protest, and the kerfuffle was covered by The Nation. After refusing a fellowship at the University of Chicago Divinity School and a teaching position at Deep Springs College, Lish became director of linguistic studies at Behavioral Research Laboratories in Menlo Park, California. There, in 1964, he produced English Grammar, a text for educators; Why Work, a book of interviews; New Sounds in American Fiction, a set of recorded dramatic readings of short stories; and A Man's Work, an information motivation sound system in vocational guidance. It consisted of over 50 translucent albums.

While in Menlo Park, one of Lish's friends was Raymond Carver, who was editing educational materials in an office across the street from Lish's office. Lish edited a number of stories which wound up as Carver's first national magazine publications.

It was at Esquire that Lish's aggressive editing of Carver's "Neighbors" in 1971 created the minimalist effect for which he was later known, as Carol Polsgrove pointed out in her 1995 book, It Wasn't Pretty, Folks, But Didn't We Have Fun? Esquire in the Sixties. Polsgrove wrote, "On several pages of the twelve-page manuscript, fewer than half of Carver’s words were left standing. Close to half were cut on several other pages." While Carver accepted Lish's editorial changes, other writers (including close friends such as DeLillo, who pulled a planned excerpt from the forthcoming Great Jones Street in September 1972 because of Lish's expurgations) resisted. Wrote Paul Bowles, "I fail completely to understand the meaning of the suggestions, or of the story as it incorporates them."[3]

While at Esquire, Lish edited the collections The Secret Life of Our Times and All Our Secrets Are the Same, which contained pieces by a number of prominent authors, from Vladimir Nabokov to Milan Kundera.

In February 1977, Esquire published "For Rupert - with no promises" as an unsigned work of fiction: this was the first time it had published a work without identifying the author. Readers speculated that it was the work of J. D. Salinger, but it was in fact a clever parody by Lish, who is quoted as saying, "I tried to borrow Salinger's voice and the psychological circumstances of his life, as I imagine them to be now. And I tried to use those things to elaborate on certain circumstances and events in his fiction to deepen them and add complexity."

In Holland’s thanks, she writes, "Greatest thanks to Gordon, captain in all weather." In Sam Lipsyte’s "Venus Drive," published by Open City books in 2000, Lipsyte gives thanks to "…especially Gordon Lish…", his former teacher.

During his time at Knopf, Lish wrote several books of his own fiction which were published by New York imprints:

What I Know So Far, a collection of short stories, was published in 1984 and included "For Rupert—with no Promises.", and the O. Henry Award-winning "For Jeromé—with Love and Kisses," a parody of J. D. Salinger's story, "For Esmé—with Love and Squalor."

Peru, was published in 1986.

In 1987, Lish founded and edited the avant garde literary magazine, The Quarterly, which showcases the works of contemporary authors. Six volumes were published by the summer of 1988. The Quarterly introduced such authors as J. E. Pitts, Jason Schwartz, Jane Smiley, Mark Richard, Bruce Holland Rogers, and Jennifer Allen. By the time The Quarterly ended in 1995, it had published 31 volumes.

Lish continued to write fiction, including Mourner at the Door in 1988, Extravaganza in 1989, My Romance in 1991, and Zimzum in 1993. For the June 1991 issue of Vanity Fair, James Wolcott wrote a profile on Gordon Lish and Don DeLillo called "The Sunshine Boys."

In August 1998, three years after Carol Polsgrove described Lish's heavy editing of Raymond Carver's Neighbors and published a facsimile page showing the editing,[4]The New York Times Magazine published an article by D. T. Max[5] about the extent of Lish's editing of Carver's short stories which was visible in manuscripts held at the Lilly Library. Carver wrote Lish: “If I have any standing or reputation or credibility in the world, I owe it to you.”[6] In December 2007, The New Yorker published an earlier and much longer draft of Carver's story "What We Talk About When We Talk About Love" under Carver's title, "Beginners." The magazine published Lish's extensive edits of the story on its web site for comparison. In May 2010 Giles Harvey wrote an article in the New York Review of Books reviewing Carver's work, and made the observation, "The publication of 'Beginners' has not done Carver any favors. Rather, it has inadvertently pointed up the editorial genius of Gordon Lish."[6] Conversely, Stephen King in The New York Times described Lish's influence as 'baleful' and heartless, singling out the story 'The Bath' as 'a total re-write' and 'a cheat'.[7] In 2013, David Winters wrote a profile of Lish for The Guardian, arguing that the widely publicized association with Carver had distorted Lish's reception, drawing attention away from the formal and stylistic innovation of his own fiction and from the achievements of his students.[8]

Don DeLillo acknowledged Lish's influence as a teacher and friend in dedicating his book Mao II to Lish. Lish dedicated his books My Romance, Mourner at the Door and Epigraph to DeLillo. Lish also wrote an afterword to the publication of DeLillo's first play, The Engineer of Moonlight, in which he attacks those who would call DeLillo's vision bleak. "Where we are and where we are going is where DeLillo is. He is our least nostalgic writer of large importance."

He received an honorary doctor of letters from the State University of New York at Oneonta in 1994. He retired from teaching fiction writing in 1997 but came out of retirement to teach during the summers of 2009 and 2010 at the Center for Fiction in Manhattan.[9]David Leavitt's novel Martin Bauman; or, A Sure Thing documents the narrator's experiences under the tutelage of Gordon Lish. In the novel, Lish is the basis for the character of Stanley Flint, an enigmatic writing teacher. T. Gertler's novel, Elbowing the Seducer, has a character who is a book editor and womanizer who is apparently based on Lish. In Barry Hannah's short novel, Ray, there is a character called Captain Gordon who is based on Lish, and Lish appears as himself in Hannah's Boomerang.

In 2014, Lish's forty-three-year-old son Atticus published a debut novel, Preparation for the Next Life, to significant acclaim. In interviews, the younger Lish has maintained that a 12-year period of estrangement from his father preceded publication, and that his own beginnings as a novelist should be considered independently from his father's legacy and influence. The two are now reportedly on good terms again, and the money the younger Lish left "on the table" by signing to an independent publisher may yet be realized with the help of Gordon Lish's powerful literary agent.[10]